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Trade based money laundering dr. arefin , dg (prevention ) acc) on 23 may 2017
This document discusses trade-based money laundering (TBML) and the challenges banks face in identifying and investigating suspicious TBML transactions. It provides examples of how under-invoicing exports and over-invoicing imports can be used to move money across borders. The document also notes documentation problems in trade financing and suggests banks request documentation based on import and export customs forms to help address these challenges.
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Trade based money laundering dr. arefin , dg (prevention ) acc) on 23 may 2017
- 1. Dr. Md. ShamsulArefin, DG ( Prevntion) ACC Trade-Based Money Laundering • “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.” January 4, 2018 1
- 2. Trade-Based Money Laundering Trade-basedmoney laundering is a method of transferring value across international borders through the trade of goods instead of cash. • TBML originally involved trade between the two countries or more • Now it has expanded to include trade all over the world. • It can be challenging for banks to identify TBML transactions. January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC
- 3. 1. US Firmhas $1 million to move to Foreign Firm 2. US Firm buys 200 gold watches at $5,000 each (pay $10,00,000) 3. Sell/Export 200 watches to Foreign Firm at $5 each 4. The Foreign Firm: Sells 200 gold watches at $5,000 each = $10,00,000 UNDER-INVOICED EXPORTS Move $1,000,000 from US to Foreign Firm Through US Export at Low Price US Firm Foreign Firm Export 200 gold watches $1,000 January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 3
- 4. 1. US Firmhas $1 million to move to Foreign Firm 2. Foreign Firm buys 10,000 pencils at 10 cents each ($1,000) locally 3. Foreign Firm sells 10,000 pencils to US Firm at $100 each 4. US Firm pays $10,00,000 to Foreign Firm OVER-INVOICED IMPORTS Move $1,000,000 from US to Foreign Firm Through US Import at High Price US Firm Foreign Firm Import 1,000 pencils $1,000,000 January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 4
- 5. Dr. Md. ShamsulArefin, DG ( Prevntion) ACC Invoice Manipulation Made Simple • Money moved out: - By importing goods at overvalued prices or exporting goods at undervalued prices • Money moved in: - By importing goods at undervalued prices or exporting the goods at overvalued prices January 4, 2018 5
- 6. Banks Under Attack! Insider Fraud Cybercrime Money Laundering Terrorism CreditCard Fraud Mortgage Fraud Phishing Hacking January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 6
- 7. Role of Bank •Conducting Due Diligence • Monitoring activity • Investigating Cases • Investigating Referrals from Lines of Business • Reporting Suspicious Activity • Providing Intelligence • Establishing Risk Mechanism • Implementing Global Sanctions January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 7
- 8. Intelligence Reporting 8 File a SAR Filea SAR Intelligence Analysts review the SARs to look for trends or patterns of money laundering activity Intelligence Analysts review the SARs to look for trends or patterns of money laundering activity Intelligence Team writes reports and analyses based on their review of the SARs as well as other analytical information Intelligence Team writes reports and analyses based on their review of the SARs as well as other analytical information Information is passed on to Compliance Team and Lines of Business Information is passed on to Compliance Team and Lines of Business This continuous exchange and sharing of information is critical for an effective AML program. January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC
- 9. Correspondent Banking Risks •Correspondent banking relationships are vulnerable to money laundering and terrorist financing because they involve a bank carrying out transactions on behalf of another bank’s customers where information on those customers is very limited. January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC
- 10. ORIGINA TOR Germany TELEX or SWIFT CHIPS TELEX or SWIFT Wells Fargo USABank Bank of Germany’s U.S. Correspondent Bank of Colombia’s U.S. Correspondent BENEFICIA RY Colombia Bank of Germany Bank of Colombia Correspondent Banking Customer Customer January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 10
- 11. Monitoring Challenges • Theparties sending wires or checks through the correspondent customers are not always the FI’s own customers – so we don’t always know them. 11 The Solution We have programs to review the wire transfers and checks clearing through the foreign correspondent accounts to identify high-risk parties or transactions for investigation. January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC
- 12. Investigation Challenges • Theparties sending wires or checks through our correspondent customers are not always our customers – so sometimes we are not able to find out much information about them. 12 January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC
- 13. Investigation challenges • Wecan send a Request for Information (RFI) to our foreign correspondent customer. 13 We can make a request under custom act Customer is outside of the BD Customer is in the BD January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC
- 14. Virtual worldReal world exchangers Visibleto banks Not visible to banks Virtual CurrencyJanuary 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 14
- 15. Under-invoiced Exports Money laundering from illegal activities Terrorist financing Income tax avoidance/evasion Capital flight Avoid export surcharge Illegal commissions • Over-invoiced Exports Increase export subsidies Impact of Trade Price ManipulationJanuary 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 15
- 16. • Over-invoiced Imports Money laundering from illegal activities Terrorist financing Income tax avoidance/evasion Capital flight Justify excessive high domestic prices under price control Illegal commissions • Under-invoiced Imports Avoid/Reduce import duties Dumping at below market prices Impact of Trade Price ManipulationJanuary 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 16
- 17. Importer USA Hawaladar In USA Surgical Instrument Exporter Hawaladar In Pakistan VATFraud S1 S2 S3 R1 R2 R3 PAK. GOV. VAT RebateWired full payment for overvalued goods PK. Rupees January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 17
- 18. PROBLEMS WITH MONITORINGTRADE FINANCING DOCUMENTATION PROBLEMS INVOICES, MANIFESTS & BILLS OF LADING INACCURATE PRODUCT DESCRIPTIONS INACCURATE UNITS OF MEASURE INACCURATE QUANTITIES INACCURATE $ VALUES AND UNIT PRICES January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 18
- 19. SOLUTION TO DOCUMENTATIONPROBLEMS FINANCIAL INSTITUTIONS ENGAGED IN TRADE FINANCING SHOULD REQUEST DOCUMENTATION BASED ON THE INFORMATION CONTAINED IN IMPORT AND EXPORT DOCUMENTS SUBMITTED TO CUSTOMS IMPORTS – IMPORT SUMMARY FORM EXPORTS – SHIPPERS EXPORT DECLARATION FORM January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 19
- 20. INFORMATION CONTAINED INCUSTOMS DOCUMENTATION DIGIT HARMONIZED COMMODITY CODES PRODUCT DESCRIPTION – 150 CHARACTERS UNIT OF MEASURE – METRIC QUANTITY OF UNIT OF MEASURE DOLLAR VALUE – ADJUSTED FOR FOREIGN EXCHANGE COUNTRY OF IMPORT OR EXPORT + (COUNTRY OF ORIGIN) FRAUDULENT INFORMATION ON A CUSTOMS DOCUMENT January 4, 2018Dr. Md. Shamsul Arefin, DG ( Prevntion) ACC 20
- 21. 21 January 4, 2018Dr.Md. Shamsul Arefin, DG ( Prevntion) ACC
Editor's Notes
- #3 If you want more information on trade based money laundering, look up FinCEN’s 2010 advisory on the topic. It’s in PDF form and is a great thing to save for further reference. And if you want a great presentation on black market peso exchange, you can check out the Informal Value Transfer Systems (IVTS) training that Paul Beers gave and that is available on the Sharepoint.